A factory in China = small societySemir's Warehousing and LogisticsVirtual Business Model/Strategy* Since 2008 Semir investment in product R&D is increasingTerminal Sales Product Design* Semir's success hinges on product design qualityLogistics Companies - all outsourced for SemirSemir Group Case Question 2* Franchise operations are growing for Semir. Two tables on pages 9 and 10 of the case depict the difference in volume between franchises and Semir chain stores.Are the development strategy and mode of Semir Group unique? Does Semir Group have unique resources and capabilities?* In 2010, Semir Shanghai Industrial Park (Distribution Center) was opened. Semir Garment possesses an annual distribution capacity of 100 million garments and has reduced the error rate of order distribution to less than .005%.China Business Case - Zhejiang Semir Garment Co. Ltd.Purpose and ApplicationCASE BACKGROUNDRapid growth of China's economy and integration into the global economy has led to a rapid rise in China's leisure clothing and garment enterprises* Integration of industrial chain* Business model innovation* Competitive strategy selectionCompany BackgroundZhejiang Semir Garment Co. Ltd. "Semir Group"* founded in 1996* owns two brands: Semir and Balabala* Intensified market competition and changes to cost elements and new sales channels are introducing challengesCase Structure - Semir GroupTime node3rd Part - Changes1st Part - Introduction2nd Part - Virtual Business Model/Strategic Path4th Part - Targeted Measures5th Part - Summary/Further Analysis* Qiu Guanghe, President of Zhejiang Semir Garment Co., Ltd., reassesses the operating environment and determines the strategic initiatives for the future of Semir Group.

* Time frame: April 2012* In the first part of the case we will have a three-stage introduction of the development course of Semir Group since 1996.

Stage 1: Left the household appliances and real estate industry and entered casual clothing "asset-light" industryStage 2: Established "Balabala" for children in 2002Stage 3: Integration and IPO in 2011* In our second part of the case we will understand the virtual operation mode of Semir Group, including:* The second part also reviews the strategic path of Semir Group and business resources that have been accumulated during inception* In this section we will summarize the problems faced by Semir Group and we will consider as a group a few questions related to the topicEuromonitor data - Apr.2012China's economy witnessed ongoing strong growth, even during the global recession of 2008-2009.Economic growth led to ever-increasing disposal income levels and therefore higher consumption of apparel products amongst Chinese customers.Overall, apparel sales benefited from this positive factor and industry players continued to see healthy retail volume and value sales growth for the previous year.

Euromonitor Data - Apr. 2012* In 2001, the average unit price of apparel continued to increase, as a result of higher raw material, labor, other production and distribution related costs.

* Due to ongoing financial downturn in developed markets in 2011, many international players continued to eye apparel in China. In 2011, leading international fast-fashion apparel players all opened more new outlets in China, not only in first tier cities like Shanghai and Beijing, but also in lower tier cities across the country.

* As a result of retail prices in store-based channels, such as department stores, hitting new highs, internet retailing was seen by Chinese consumers as a cheaper option. In 2011, the number of internet users and online buyers in China resulted in unprecedented growth.Semir's ProblemsOperating costs:Operating costs increased from RMB 2.34 billion in 2008 to RMB 4.75 billion in 2011.Operating cost pressures from continuous increases in material and labor costs.

What is the main reason for the rapid development of China's private garment enterprises in the past 20 years?Timeline of Semir's developmentCase Question 3:* In the recent years, what changes of industry environment that garmet enterprises such as Semir Group are facing have occurred?* What are the new opportunities and threats?Semir's Development Process* What are Semir Group's strengths and weaknesses?China's garment industryStrong economic growth stimulates apparel salesInternet retailing becomes a cheaper choice.Case Topics---Terminal sale organization mode of product design---Production outsourcing---Warehousing and logistics building---Fewer chain stores....more franchised storesGarment Industry ChangesGrowing casual clothing industryRising costsShrinking children's clothing industryChanges of effective sales channelsCompetitorsIntegrate Supply ChainEnhance Brand ValueImprove profitability of a single storeChina's garment industry* Chinese apparel is expected to generate ongoing healthy growth, both in retail volume and value sales terms. This will be driven by the country’s ongoing economic development, rising disposable income levels and a desire for a higher standard of living amongst consumers. Increasing choice through various channels, and wide availability of international fast-fashion and sportswear brands, will contibute to increased spend by consumers.China's garment industryEuromonitor data - Apr.20121996QiuGuanghe founded Wenzhou, predecessor of Semir. Previously his experience was in home appliance and real estate.

In early 2000, most brands were sold in malls but Semir and Balabala used a low cost franchise store modelMid-90's2008Officially renamed Semir Garment Co., Ltd. At the same time changed ordering mode to improve supply chain response, and worked to more clearly define brand and target 16-25 year olds and 3-12 year olds. Since 2008 the virtual business model has been investment in R&D, brand marketing, and affordable production.2008April 2012Semir Garment listed on the SME board of Shenzhen Stock Exchange2012Semir Casual Wear and Balabala Kids' Wear designed a total of 8,446 garmet products in 2010.

These thousands of products are not produced by Semir but are outsourced to ready-to-wear makers. Semir uses the large capital savings to gain market share and reduce product costs.Read page 6 of case for other strengths and weaknesses.Less Chain Stores, More FranchisesSince 2000, demand has been high for both quality and brand.Impact from China's one-child family planning policy.Metersbonwe has increased number of its chain stores and other competitors are planning for expansion. No one competitor has a market share of over 2%.

Metersbonwe, like Semir uses a virtual business model, targets young people 18-25 and provides stylish fashion.

Semir has problems in the e-commerce channel with costs. Semir is still working on this channel.Semir has been impacted by rising costs of both suppliers and stores.

Euromonitor Data - Apr. 2012

Euromonitor Data - Apr. 2012(Euromonitor, 2012)2)Semir is building new warehouses and will own centers is southern, northern, eastern, and central regions of China.Semir is increasing R&D investment to improve existing brand image and plans to develop new brands, and is thinking about creating a new brand to enter shopping malls and e-commerce.Increase proportion of chain storesImprove franchised outletsImprove chain store performance through information systemsFocus on second and third-tier citiesCase Question 4What is the major problem faced by Semir Group: strategic positioning, brand, product style and quality, sales channels, funds, or other?

Are any of these problems just faced by Semir or are they industry wide problems?Case Summary/Final ThoughtsIn order to cope with various challenges outlined in the case, Semir Group determined its key strategic initiatives: integrate supply chain, enhance brand value, and improve profitability of a single store. Do you think these strategies will contribute to the achievement of the strategic positioning of Semir Group?